Category Archives: credit card interest

Credit card issuers are very upfront with the features that attract new customers. Things like signup bonuses, category bonuses, or special financing are essentially marketing tactics to drive new business. What card issuers are not always the best at doing, is explaining everything you can find in the fine print. These are the things that can have a big impact on your finances.

Grace periods have long been used within the credit card industry, but most people don’t really understand what they are and how they can work for you or against you. Understanding how credit card companies use grace periods can mean the difference in hundreds if not thousands of dollars in interest out of your pocket each year.

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What Is a Grace Period?

A grace period is the time from when your credit card billing statement closes until when your payment is due. This is usually anywhere from 21 to 27 days. To help you understand this a little more, let’s look deeper into how credit card billing cycles work.

Each month, when you receive your credit card statement, in addition to the bill’s due date, you will see a date that is generally labeled as the “statement date” or “closing date”. What the card company will do is total all the purchases made from the previous closing date to the current closing date and bill you for them. Let’s assume your statement’s closing date is November 7, any purchase that you make on November 8 or after will be part of the next billing cycle.

During this grace period, you’re not going to be paying interest. Think of it like your credit card company extending you a complimentary line of credit for a few weeks. However, if you do either of the following two things, interest will start accruing immediately:

You only pay a portion of the total amount due by the due date.

You pay the entire balance, but only after the due date has passed.

If this happens to you, it’s important to know that interest won’t just start accruing from the statement’s due date, it will actually accrue all the way back to the purchase dates of each item.

A Two-Month Grace Period?

Now that you know exactly what the grace period is, what if someone told you that you could extend it to nearly two months? It’s possible and not all that difficult to accomplish. Plus, if you are planning to make a large purchase and want to little extra time to pay off the balance, then this could be an extremely useful tactic.

Because your credit card billing month starts over the day after your statement closes, the trick it to make your purchases as close to that date as possible. Let’s say that your statement closed on November 2 and you bought a new television on November 3. Your next statement, which includes the television purchase, would close on December 2 and you would have a due date of approximately December 23. That means you would have nearly two months from the time you bought your new television until when you would face possible interest on the purchase. (Note: If you’re looking to avoid interest for a longer period of time, you might want to consider a balance transfer credit card.)

Smart Charging

Remember, while the strategy can be helpful in avoiding interest on a big purchase, it’s not an excuse to overspend. Credit cards are best leveraged when they’re paid off in full by each due date. Otherwise, as we mentioned, you’ll start to accrue interest, which can add up quickly, damaging your overall financial health and your credit. (The amount of debt you owe plays a major role among credit scores. You can see how your debt levels are affecting your credit by viewing your free credit report snapshot, updated every 14 days, on Credit.com.)

Also, anyone looking to properly manage their debt needs to have a good understanding of grace periods. Credit card companies are not required to have a grace period and some do not. If they do, the CARD Act of 2009 requires your statement must be mailed or delivered to you at least 21 days before the due date. Make sure you read the fine print for your credit card so that you can fully understand how your card works and what actions may nullify your grace period, if you do have one. It could save you a lot of money in the long run.

If you’re saddled with debt and looking for ways to pay it off, a balance-transfer credit card may be able to help. These useful pieces of plastic, which typically grant cardholders a promotional period of interest-fee financing for up to 15 months, are designed with people like you in mind: those who want to get out of debt.

So how do they work? In theory, customers transfer their balance from an interest-bearing card to the new one, then work to pay off their debt before the promotional APR ends (and the new one kicks in). Of course, not everyone’s a pro at this, and if you’re not careful, you can damage your credit and still be stuck in debt. To help you avoid such a poor-credit mishap, we’ve compiled a list of golden rules for using your balance-transfer card wisely.

Don’t Add to Your Balance

There’s a reason you got into debt in the first place, so the last thing you want to do is make it worse. Remember, if you add more debt to your already hefty balance, you’ll have a tougher time paying it off before the promotional interest-free period ends, and your credit could suffer as a result, because high levels of debt are a red flag to lenders. (You can see where your finances stand by viewing two of your free credit scores on Credit.com.)

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Another reason to leave that balance alone once you transfer it to the new card? Many people find it easier to budget for fixed costs than moving targets.

Find a Card Without a Balance-Transfer Fee

Once upon a time, creditors waived fees for transferring a balance from one card to another. Nowadays, many creditors tack on 3% to 5% interest just for doing the job. If you’re already in debt, you don’t want to worsen the burden. Research all the balance-transfer cards out there, and look for a card that doesn’t charge fees just for making a transfer. Trust us, your wallet (and future self) will thank you.

If You Can’t Ditch the Fee, Try to Save on Interest

Sometimes, despite all your research, you end up applying for a card that charges a fee to transfer a balance. That’s OK. But while you’re working to pay off your debt, it’s a good idea to do what you can to save some money on interest. How? By paying down your balance as much as you can — at least before the promotional period ends and the newer (higher) APR comes into play. Remember, the greater your interest, the quicker your debt is going to pile up. (Consider using this credit card payoff calculator tool to find out how long it might take you to relieve yourself of that debt.)

Pay it Off Before the Promotion Ends

As we’ve mentioned several times, it’s imperative that you work to pay off your card before the promotional period ends, lest you wind up saddled with higher interest — and more debt, if you can’t pay it off. For this reason alone, you may want to choose a card with 21 months of 0% APR, such as the Citi Simplicity, whose review you can read here. As an added incentive to apply for the card, Citi Simplicity doesn’t charge any late fees. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)

Read the Fine Print

As with any credit card you’re applying for, fees and policies are subject to change at a moment’s notice, so you’ll want to make sure that the card you choose has the best plans for you and your budget. Some balance-transfer cards charge penalty rates for late payments, taking away the introductory rate entirely when you make a late payment. (Some of those eye-popping penalties can climb as high as 30%.) Finally, it helps to know what your credit card’s APR will be once the interest-free financing period ends. You don’t want to get hit with sticker shock when you carry a balance on a card with a 23.99% APR.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

At publishing time, the Citi Simplicity card is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

Paying down your debt is a popular and noble goal to work toward. Of course, getting to that zero balance is easier said than done. Fortunately, there are some ways you can make the task a bit easier and increase the odds you’ll stay on track. Here’s how to jump-start your debt repayment plan in 2016.

1. Keep Your Other Resolutions

New Year’s can be a great time to rebalance your budget — which will in turn drive more dollars towards your debt — since less spending often goes hand in hand with popular resolutions.

“If you are trying to lose weight or quit smoking, for example, you may find extra cash in your budget that would have gone to restaurants, bars, snacks or cigarettes,” Elizabeth Grahsl, a private banker with Prosperity Bank, wrote in an email. “If you can commit to just four to six weeks not shopping or eating out – which you’ve probably had enough of during the holidays, anyway — you might free up enough cash to repay those holiday credit card bills in full as they roll in.”

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2. Think Small & Steady

Paying down big balances can get overwhelming and cause you to quit before you even got started. To stay motivated, break your big goal into smaller steps. “Focus on the different parts of your goal,” financial therapist Amanda Clayman wrote in an email. “First getting everything organized (yay, success!), then coming up with a spending plan that allows you to not incur new debt/pay more than the minimums (yay, success!), then putting the plan in motion.”

3. Minimize Credit Card Interest

You may be able to lower the costs of certain balances. For instance, “keep an eye out for credit card and lending offers in the mail,” Taylor R. Schulte, a certified financial planner and founder of Define Financial in San Diego, Calif., wrote in an email. “These offers can sometimes be a great tool to consolidate higher interest rate debt at a lower rate.”

If you do want to take advantage of a balance transfer credit card or debt consolidation loan, it’s a good idea to review the terms and conditions carefully. Some credit card offers could retroactively charge interest if you don’t pay a balance transfer off in a specified timeframe, making the debt more expensive. You’ll also want to check your credit to see what type of offers you might qualify for. Good credit scores of 750 or above (on a scale of 300 to 850) generally offer the best interest rates. You can see where your credit stands by viewing your two free credit scores each month on Credit.com.

4. Prioritize Payments

If your credit doesn’t qualify you for good offers, avoid taking on new debt to pay off old debt. And if you’re trying to pay down several credit cards, prioritize the payments. “Start with the debt that has the highest interest rate and put together a payoff plan that you can stick to,” Schulte said. “Be careful that you don’t make it too unrealistic, or you will likely fail and give up.”